The attacks on Mumbai are a new blow to an economy already suffering from internal problems and could spell disaster for tourism
Flanked by the luxurious Taj Mahal Palace, the Gateway is a potent symbol of old and new India. But last week these icons of the Mumbai cityscape earned a new horrific significance as terrorists used them to strike a blow at the heart of India's financial capital.
While visceral footage of what local news networks described as 'Mumbai's 9/11' was beamed around the world, India was forced to confront a new terrorism paradigm, after extremists followed al-Qaeda's example by singling out foreign nationals for attack.
The burnt-out Taj Mahal and Trident-Oberoi hotels will provide a daily reminder of the devastation for those who walk by on their way to work in the nearby financial district, where multinational giants Merrill Lynch, Morgan Stanley and HSBC all have offices.
Analysts are worried that the constant reminder of the attacks will heighten investors' concerns at a time when the Indian economy is slowing and foreign capital is being repatriated. The UK is one of the top three investors in India but in 2008 international funds have been flowing the other way as overseas investors have pulled a record $13.5bn out of Indian stocks, contributing to the 56 per cent fall in the main Bombay Stock Exchange index.
'This is the last thing India needs,' said businessman Sir Gulam Noon. The British-based multimillionaire, who made his fortune in ready meals, escaped unhurt from the Taj Mahal after spending a frightening night holed up in his suite on the third floor. 'The attacks will temporarily have an impact. It's clearly not good for the economy at a time when the world is in financial crisis.'
That the Taj Mahal and Oberoi play host to the cream of the international business elite is clear given the high-profile executives caught up in the tragedy. Along with Noon, Unilever chief executive Patrick Cescau and his successor, Paul Polman, escaped the Taj Mahal. The hotel's apparent vulnerability is worrying - Gordon Brown and a delegation of 100 British business leaders, including Sir Richard Branson stayed there earlier this year.
The head of Mumbai's anti-terrorist squad, Hemant Karkare, was also among those killed. 'The security landscape has changed overnight,' said Jake Stratton of investment risk consultancy Control Risks. 'This will have a serious effect on how foreign companies perceive India as a business destination.'
In the three decades following independence in 1947, India's GDP growth averaged around 1 per cent, but international links have helped its economy to grow by at least 9 per cent for the last three years. This new success transformed Indian companies into powerbrokers on the main stage; notable deals have included Tata's move on British steelmaker Corus and United Breweries' acquisition of Whyte and Mackay.
Last month Indian finance minister Palaniappan Chidambaram insisted economic growth would 'bounce back' to 9 per cent in 2009. But the International Monetary Fund is more cautious, predicting the figure will be closer to 6 per cent.
Capital Economics analyst Tehmina Khan goes further in interpreting last week's GDP figures, which showed India's economy grew 7.6 per cent in the third quarter, its slowest pace since 2004, as the start of a 'potentially severe' downturn.
The figures revealed an economy slowing across the board, with manufacturing growth at its lowest level since 2002 and service sector gains dipping below 10 per cent for the first time in three years. Consumer spending was up 5 per cent year on year, but that was 3 percentage points lower than in the second quarter - also the lowest since 2002. 'With banks also becoming more cautious about lending, India's growth prospects look increasingly poor,' said Kahn, who expects growth to slow to 5 per cent next year. 'Both investor and consumer confidence will have been dented by the terrorist attack on Mumbai, with overseas investors unlikely to rush back in.'
In the heat of last week's crisis, the stock, bond and foreign-exchange markets were all closed, although the central bank continued to pump cash into the interbank lending markets. The last time the stock exchange was shut as a result of a terrorist attack was in 1993, when at least 70 people were killed in a series of explosions.
Raj Nambisan, business editor of Mumbai newspaper DNA, said closing the exchanges was the wrong thing to do as it 'sent out the wrong message to investors. I don't think this incident will affect business sentiment in the long-term. Mumbai is the financial centre, it is not India. There are not many economies growing at 7 per cent'.
Mohan Kaul, director-general of the Commonwealth Business Council agrees: 'Fear will not drive business away from India, if anything it will create a bond between the big financial cities who have all had their confidence shaken. The tube in London and the Twin Towers in New York are just as iconic as the Taj hotel. The bond between British and Indian business leaders will be stronger as they sit down to discuss deals.'
However, the timing of the attack, just as the holiday season gets under way, is expected to hurt India's important tourism economy as countries tighten travel policies. Around the country, hotels increased security controls last week. At the Taj Mahal's sister hotel in New Delhi, all visitors had to pass through a perimeter security checkpoint. Anxious staff, many of whom had friends among those hurt in Mumbai, manned metal detectors and searched bags as they sought to restore faith in their ability to protect those within its marbled walls.
Members of India's growing business elite smiled kindly at Westerners as they huddled nervously in the lobby. 'I worked in New York during 9/11 and that didn't stop me going back,' said Nils Thil, who is determined to continue his holiday in India with his wife, Maggie. 'It doesn't matter where you are, terrorism is international now.'
Earlier that day, few holidaymakers had ventured to the capital's tourist sites with chattering local schoolchildren outnumbering foreign visitors at the atmospheric Qutb Minar, the world's tallest brick minaret.
However, London-based Alpesh Patel, of UK investment fund Praefinium, argues India has more to fear from the credit crunch than extremists: 'Nothing has changed. London, New York and Madrid have all suffered major terrorist attacks, Mumbai is no different. The attacks don't affect whether a real estate project gets built or not.'
It is the global crunch and India's home-grown liquidity constraints that have put the brakes on many of the infrastructure projects which are desperately required.
Although a fifth of India's 1.1 billion population is estimated to be living in poverty, the country's rapid economic growth has swelled the ranks of the middle class to an estimated 50 million, providing consumer goods companies with a sea of demand. Each month 10 million people sign up for a mobile phone. Consultancy McKinsey predicts the middle class will grow to 583 million by 2025, comfortably outnumbering the entire US population of around 350 million. 'Nothing will stop smart global businesses pounding on India's door,' added Kaul. 'The truth is India is not opening up as fast as businesses want.'
Brewer SABMiller is looking to convert a nation of tea drinkers, taking on United Breweries' Kingfisher beer with brands such as Indus Pride and Foster's. The beer market is growing at around 15 per cent per year, the fastest rate in Asia, as young 'metros' in cities such as Mumbai and New Delhi use what is an expensive drink as a symbol of their new buying prowess.
Jean-Marc Delpon de Vaux, managing director of SABMiller India, claims the monsoon rains have had a greater impact on business than the global financial crisis. 'Credit-dependent sectors such as cars and property are suffering. But India is less dependent on exports - the potential of the internal market is huge. Also the savings ratio is the highest in the world at 40 per cent.'
But last Thursday morning the vast Ambience mall on the outskirts of Delhi was quiet, with assistants idling on their mobile phones. Dust hung in the air at the half-finished centre, which promises 'room for a million smiles'. Jumbo Electronics was offering large discounts with 19in plasma TVs starting at R17,500 (£230). British import Marks & Spencer was also emphasising value in its windows with mannequins showcasing complete men's and women's outfits at R2,090 (£27) and R1,290 (£17).
Like in Britain, Indians' real income growth has been eroded by inflation - food price inflation is at 9 per cent - while confidence has also been dented by rising jobs losses. Tata Motors is reportedly cutting up to 6,000 jobs as, faced by a collapse in demand, it scales back production. 'There has been a sobering of consumption,' said Nambisan. 'The biggest problem is a lack of confidence, as it means people will not spend, which is the engine that has been firing India.'
Broker Investec argues the uncertain economic outlook could hasten necessary reforms, saying: 'The reforms of the early 1990s were triggered by a balance of payments crisis and deteriorating government finances. Perhaps with liquidity tight and the international economy facing intense dislocation, it will be poor economic conditions that push through much needed reform.'
'We will fight back,' added Noon. 'Tough times do not last long but tough people do. Mumbai will come back from this.'
India counts the cost of global terrorism